Our most recent monthly newsletter revisits the benefits of diversification. For many investors, the most basic investment selections – say the broad US stock market and the broad US bond market – have been the most lucrative investment strategies over the past few years. This is partially due to US consumer resilience, but it is also due to some of our policy directions (i.e. punishing international trading partners) and some inopportune choices abroad (i.e. Brexit renegotiations). While Britain keeps kicking the can down the road, shoving off their threats to enact a hard-Brexit, the rest of their trading partners will continue to enjoy uncertainty over their final details. The net result is a general slowdown of service sector growth and an outright retraction of manufacturing in the UK which has spread to its greatest trading partner, the EU. Continued weakness in the developing markets (outside of the US) might make 2020 a weak year for fundamentals abroad.
Do note, however, that we are discussing economic fundamentals, not market action. Investors may have a completely different experience if, for instance, US debt issues become the catalyst for a sharp downward valuation of US equity or if bargain-buyers start snapping up continental assets which have been depressed for quite a while. Alternatively, it’s entirely possible that bona-fide emerging market decoupling (wherein EM growth becomes internally focused, separate from its role as an importer to other developed markets) becomes an actuality, only 15 years or so later than originally theorized.